Buyer’s closing costs

Closing costs are the fees which you, as a BUYER, must pay when purchasing a home in Ontario.  Closing costs are a list of charges your lawyer presents to you on the closing date of your home.

According to the CMHC and Genworth Financial you should have at least 1.5% of the purchase price for closing costs in addition to the down payment (have around 2.5% to be on the safe side). The costs vary among provinces and cities. Below you will find a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation. Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation.

1. Purchase Price (from offer) less the deposit you have made with the offer. This would be comprised of the balance of your down payment, plus the mortgage loan funds from the bank.

2. Home inspection fee: This one is actually due before closing…if you are doing a home inspection as part of your offer, costs for this generally range from $300.00 – $500.00, and you must pay the Home Inspector on the day he or she does their inspection.

3. Appraisal fee: your bank lender will arrange an appraisal of the property at your expense, prior to advancing any mortgage loan. Approximate cost: $250.00

4. Legal fee for purchase of home: It’s usually best to budget about $1600.00 in all. Lawyers are funny – these will advertise a “basic” fee, but will then add plenty of additional charges to pay for the various components of your purchase. Almost always, once these additional fees are included, which include such items as title search fees, registration fees, disbursements, photocopies, courier costs, etc., the total amount will approach about $1200.00 – $1300.00. Once the HST is added to this, the grand total usually approaches approximately $1500.00. If you budget $1600.00, and it comes in less, you will be happy! Incidently, when selling a house, the fee is usually a couple of hundred dollars less, as title search is not required.

These are the regular legal fees. Lawyers’ fees can increase if there are any unusual circumstances associated with the sale – delays in closing, power of sale, will probates, etc.

Many lawyers offer a better rate if you are both buying and selling a home and they both close on the same day.

5. Title Insurance: More and more lawyers are including title insurance as part of their fee. Once considered optional, Title Insurance is always a good idea, as it protects you against identity theft, typographical errors, and much more, for as long as you own the home. Cost: a one-time fee approx. $250.00.

6. Ontario Land Transfer Tax: Is the tax that must be paid to the Province of Ontario on registration of a Deed. The rate of tax is based on the price of the home purchased. The calculation is as follows:

  • Under $250,000: Purchase price x 1% less $275.00

  • Over $250,000: Purchase price x 1.5% less $1525.00

  • Over $400,000: Purchase price x 2% less $3525.00

  • Note: If you are a first time home buyer in Ontario you are eligible for an instant refund of the provincial land transfer tax up to $2,000. Any tax amount due over $2000.00 you must still pay

  • If you are purchasing a home in the City of Toronto, there is a second, additional tax! Toronto Land Transfer Tax amounts are similar to the provincial tax, and you are exempt from this tax if you are a first time buyer, and the purchase price is less than $400,000

7. Prepaid Expenses: (Utilities, taxes, condo maintenance fees).  These are expenses that the seller may have prepaid and which they get reimbursed for.  This amount will be reflected in the statement of adjustments that you receive from your lawyer. For example, if the Seller has prepaid their municipal property taxes through to the end of the year, and your closing date is  60 days before the end of the year, then the Seller must be reimbursed…and you, the Buyer, are required to pay them this money back in full, at closing.

8. Mortgage Insurance: (CMHC – Canada Mortage and Housing Corporation).  If your down payment is less than 20% of the total purchase price of the home, Canadian banking regulations require that you pay a mortgage loan insurance premium to protect the lender.  This premium can be several thousand dollars, but it then allows you to buy a home for as little as 5% downpayment. These fees can be prepaid up front, but they are usually added to the mortgage loan amount, adding a relatively small amount to your monthly carrying cost.

9. PST on CMHC premium: Even though the CMHC Mortgage Insurance mentioned in #8 can be rolled into your monthly mortgage payment, there is PST tax which is assessed on the CMHC premium, and this PST amount must be paid in full at closing. So just as an example, if the CMHC fee is, say, $5000,00, you don’t have to pay that fee today – it is typically added to your total mortgage loan, resulting in a small increase in your monthly payments, but there is PST to pay on it. PST in Ontario is currently 8%, and 8% of $5000.00 is $400.00 – which is the amount you would have to pay your lawyer on closing day.

10. CMHC application fee: an application fee for the CMHC mortgage insurance which ranges from $75.00 to $235.00.

11. Interest adjustment: Monthly mortgage payments are due on the 1st of the month.  Unless the closing date is the 1st, you must repay the amount of interest accruing up to the 1st day of the following month, which is the Interest Adjustment Date.  For example if the closing date is March 15th but, the IAD is April 1st, interest from March 15th to the 31st must be paid.

12. Home Insurance: all lenders will require you to have home insurance on your freehold property, before they will advance your mortgage loan funds (needed for closing). Basic home insurance for an average house can range from $600.00 – $700.00 per year, and many insurance companies will require that you pay the entire year’s premium up front.. If you are buying a condo, the good news is that the building insurance is already included with your condo maintenance fees; nevertheless it is also a good idea to get contents insurance for your unit, covering fire and theft.

13. Life Insurance: many lenders will require that you have a Life Insurance policy in effect before they will advance your mortgage loan funds (needed for closing).

These are most of the typical real estate closing costs which you will need to factor in when you buy a house or condo in the Province of Ontario.